Performant Financial Corporation Announces Financial Results for Fourth Quarter and Full Year 2012

LIVERMORE, Calif., Feb. 28, 2013 (GLOBE NEWSWIRE) -- Performant Financial Corporation (Nasdaq:PFMT), a leading provider of technology-enabled recovery and related analytics services in the United States, today reported the following financial results for its fourth quarter and fiscal year ended December 31, 2012:

Fourth Quarter Financial Highlights

Revenues increased to $56.0 million, year-over-year growth of 31.3%

Adjusted EBITDA increased to $17.4 million, compared to the prior year period of $14.4 million, year-over-year growth of 20.8%

Net income increased to $6.0 million, resulting in earnings per diluted share (EPS) of $0.12 compared to a net loss of $0.10 in the prior year period

Adjusted net income increased to $7.1 million, year-over-year growth of 8.6% - Adjusted earnings per diluted share (Adj. EPS) was $0.15 compared to $0.15 in the prior year period

Full Year 2012 Financial Highlights

Revenues increased to $210.1 million, from $163.0 million in 2011, growth of 28.9%

Adjusted EBITDA increased to $69.6 million, growth of 20.4% compared to the prior year period of $57.8 million

Net income increased to $23.0 million, from $12.4 million in 2011, growth of 85.5% - earnings per diluted share (EPS) was $0.44 compared to $0.13 in the prior year period

Lisa Im, Performant Financial's Chief Executive Officer said, "We delivered strong revenue growth in both Student Lending and Healthcare, despite the challenges presented by the Department of Education's system conversion and the temporary suspension of some of our healthcare audit and recovery activities as a result of Hurricane Sandy. This performance is a testament to our proprietary technology platform, our differentiated operating model and our ability to continually execute on our business plan. The Healthcare market again delivered the strongest growth and accounted for approximately 28% of the company's total revenues during the fourth quarter, relative to about 3% only two years ago in the fourth quarter of 2010. Finally, we recently announced a new strategic partnership with Magellan Healthcare and the award of a new payment recapture contract with the Department of Education.
These events highlight the adaptability of our analytics and recovery services platform to new markets."

Student Lending revenues grew 11.4% during the fourth quarter to $34.2 million from $30.7 in the prior year period. Student Loan Placement Volume (defined below) during the quarter totaled $2.2 billion, an increase of 45.1% compared to the prior year period. This is primarily a result of a significant increase in placements from the Department of Education as a system conversion project had impacted placement volumes from the Department dating back to September of 2011. During the fourth quarter, we received placements of approximately $1.1 billion from the Department of Education, compared to placements of less than $200 million during the third quarter of 2012.

Healthcare revenues grew 119.1% during the fourth quarter to $15.7 million from $7.1 million in the prior year period. Our Net Claim Recovery Volume (defined below) during the quarter was $138.4 million, compared to $62.8 million in the prior year period. Other revenues grew 27.4% during the fourth quarter to $6.1 million from $4.8 million in the prior year period.

As of December 31, 2012, the Company had cash and cash equivalents of approximately $37.8 million.

Full Year Fiscal 2012 Results

Revenues for the full year ended December 31, 2012 were $210.1 million, an increase of 28.9% compared to $163.0 million in the prior year period. Student Lending revenues grew 8.1% to $132.4 million from $122.6 million in 2011. Student Loan Placement Volume totaled $5.8 billion, a decrease of 7.6% compared to the prior year, primarily due to the system conversion at the Department of Education, which has delayed placements to us and all other recovery vendors as well as our decision to terminate a marginally profitable contract with a commercial bank client. Healthcare revenues grew 154.1% to $54.7 million from $21.5 million in the prior year. Our Net Claim Recovery Volume was $482.2 million, compared to $188.5 million in the prior year. Other revenues grew 21.3% to $22.9 million from $18.9 million in the prior year, largely related to a new default-aversion service contract that
commenced in May 2012.

Net income for the full year was $23.0 million, or EPS of $0.44 on a fully diluted basis, compared to $12.4 million or EPS of $0.13 on a fully diluted basis in 2011. Adjusted EBITDA for 2012 was $69.6 million as compared to $57.8 million in 2011. Adjusted net income for 2012 was $30.6 million, resulting in adjusted EPS of $0.64 on a fully diluted basis. This compared to $25.0 million or $0.55 per fully diluted share in 2011.

Terms used in this Press Release

Student Loan Placement Volume refers to the dollar volume of defaulted student loans first placed with us during the specified period by public and private clients for recovery. Placement Volume allows us to measure and track trends in the amount of inventory our clients in the student lending market are placing with us during any period. The revenue associated with the recovery of a portion of these loans may be recognized in subsequent accounting periods, which assists management in estimating future revenues and in allocating resources necessary to address current Placement Volumes.

Net Claim Recovery Volume refers to the dollar volume of improper Medicare claims that we have recovered for CMS during the applicable period net of any amount that we have reserved to cover appeals by healthcare providers. We are paid recovery fees as a percentage of this recovered claim volume. We calculate this metric by dividing our claim recovery revenue by our Claim Recovery Fee Rate (the weighted-average percentage of our fees compared to amounts recovered by CMS). This metric shows trends in the volume of improper payments within our region and allows management to measure our success in finding these improper payments, over time.

Earnings Conference Call

The Company will hold a conference call to discuss its fourth quarter and full year results today at 5:00 p.m. Eastern. A live webcast of the call may be accessed over the Internet from the Company's Investor Relations website at investors.performantcorp.com. Participants should follow the instructions provided on the website to download and install the necessary audio applications. The conference call is also available by dialing 877-941-4774 (domestic) or 480-629-9760 (international) and entering passcode 4592716. Participants should ask for the Performant Financial fourth quarter earnings conference call.

A replay of the live conference call will be available beginning approximately one hour after the call. The replay will be available on the Company's website or by dialing 1-877-870-5176 (domestic) or 1-858-384-5517 (international) and entering the replay passcode 4592716. The telephonic replay will be available until 11:59 pm (Eastern Time), March 7, 2013

Interested investors and other parties may also listen to a simultaneous webcast of the live conference call by logging onto the Investor Relations section of the Company's website at investors.performantcorp.com. The on-line replay will be available on the website immediately following the call.

About Performant Financial Corporation

Performant Financial Corporation is a leading provider of technology-enabled recovery and related analytics services. The Company's services help identify and recover delinquent or defaulted assets and improper payments for various government, healthcare and financial services markets in the United States. The Company was founded in 1976 and is headquartered in Livermore, California.

Note Regarding Use of Non-GAAP Financial Measures

In this press release, to supplement our consolidated financial statements, the company presents adjusted EBITDA and adjusted net income. These measures are not in accordance with generally accepted accounting principles (GAAP) and accordingly reconciliations of adjusted EBITDA and adjusted net income to net income determined in accordance with GAAP are included in the "Reconciliation of Non-GAAP Results" table at the end of this press release. We have included adjusted EBITDA and adjusted net income in this press release because they are key measures used by our management and board of directors to understand and evaluate our core operating performance and trends and to prepare and approve our annual budget. Accordingly, we believe that adjusted EBITDA and adjusted net income provide useful information to investors and analysts in understanding and evaluating our operating results in
the same manner as our management and board of directors. Our use of adjusted EBITDA and adjusted net income has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In particular, many of the adjustments to our GAAP financial measures reflect the exclusion of items, specifically interest, tax and depreciation and amortization expenses, equity-based compensation expense and certain other non-operating expenses, that are recurring and will be reflected in our financial results for the foreseeable future. In addition, these measures may be calculated differently from similarly titled non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

Forward Looking Statements

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our ability to execute our business plan and to perform successfully under a strategic partnership and contract in new end markets. These forward-looking statements are based on current expectations, estimates, assumptions and projections that are subject to change and actual results may differ materially from those expressed in or implied by the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the high level of revenue concentration among our five largest customers, that many of our customer contracts are not exclusive and do not provide for committed business volumes, that we face significant competition in all of our markets, that the U.S.
federal government accounts for a significant portion of our revenues, that future legislative and regulatory changes may have significant effects on our business, failure of our or third parties' operating systems and technology infrastructure could disrupt the operation of our business and the threat of breach of our security measures or failure or unauthorized access to confidential data that we possess. More information about potential factors that could affect the Company's financial condition and operating results or the results expressed in or implied by any forward-looking statements is included from time to time in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of the Company's Report on Form 10-Q for the quarter ended September 30, 2012 filed with the SEC. The forward-looking statements are made as of the
date of this press release and the company does not undertake to update any forward-looking statements to conform these statements to actual results or revised expectations.

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)

Assets

December 31,
2012

December 31,
2011

(Restated)

Current assets:

Cash and cash equivalents

$ 37,843

$ 20,004

Trade accounts receivable, net of allowance for doubtful accounts of $65 and $77, respectively and estimated allowance for appeals of $1,199 and $484, respectively

Common stock, $0.0001 par value. Authorized, 500,000 and 60,000 shares at December 31, 2012 and 2011, respectively; issued and outstanding 45,392 and 37,667 shares at December 31, 2012 and 2011, respectively

The number of Series A convertible preferred shares outstanding, Series A convertible preferred stock, the number of common shares outstanding, Common stock, and Additional paid-in capital have been restated to give effect to the two-for-one split. See Note 1 for additional information.

See accompanying notes to consolidated financial statements.

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2012

2011

2012

2011

(Restated)

(Restated)

Revenues

$ 55,974

$ 42,641

$ 210,073

$ 162,974

Operating expenses:

Salaries and benefits

23,576

16,645

83,002

67,082

Other operating expenses

18,252

14,006

71,305

49,199

Impairment of trade name

--

13,400

--

13,400

Total operating expenses

41,828

44,051

154,307

129,681

Income from operations

14,146

(1,410)

55,766

33,293

Debt extinguishment costs

--

--

(3,679)

--

Interest expense

(3,085)

(3,317)

(12,414)

(13,530)

Interest income

--

31

64

125

Income before provision for income taxes

11,061

(4,696)

39,737

19,888

Provision for income taxes

5,088

(2,323)

16,786

7,516

Net income (loss)

$ 5,973

$ (2,373)

$ 22,951

$ 12,372

Accrual for preferred stock dividends

--

1,710

2,038

6,495

Net income available to common shareholders

$ 5,973

$ (4,083)

$ 20,913

$ 5,877

Net income per share attributable to common shareholders

Basic

$ 0.13

$ (0.10)

$ 0.48

$ 0.14

Diluted

$ 0.12

$ (0.10)

$ 0.44

$ 0.13

Weighted average shares

Basic

45,366

42,963

43,985

42,962

Diluted

48,812

42,963

47,599

45,742

Net income per share attributable to common shareholders and weighted average shares outstanding have been restated to give effect to the two-for-one split.

PERFORMANT FINANCIAL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Twelve Months Ended December 31,

2012

2011

Cash flows from operating activities:

Net income

$ 22,951

$ 12,372

Adjustments to reconcile net income to net cash provided by operating activities:

(1) Represents debt extinguishment costs comprised of approximately $3.3 million of fees paid to lenders in connection with our new credit facility and approximately $0.3 million of unamortized debt issuance costs in connection with our old credit facility.

(2) Represents impairment expense to write off the carrying amount of the trade name intangible asset due to the plan to retire the Diversified Collection Services, Inc. trade name.

(3) Represents professional fees and settlement costs related to strategic corporate development activities and a $1.2 million legal settlement in 2011.

(4) Represents expenses incurred under an advisory services agreement with Parthenon Capital Partners, which was terminated in April 2012.

(5) Represents amortization of capitalized expenses related to the acquisition of Performant by an affiliate of Parthenon Capital Partners in 2004, and also an acquisition in the first quarter of 2012 to enhance our analytics capabilities.